Palin seeks "bullet" gas pipeline for in-state use

ANCHORAGE, Alaska, March 3 (Reuters) - Alaska Governor Sarah Palin on Tuesday unveiled a plan to encourage development of a $4 billion in-state natural gas pipeline that would precede the massive project that state officials hope will deliver North Slope natural gas to North American markets.

“We’ve got to do this project. We’ve got to see it come to fruition, or our state will be a state that imports natural gas despite the fact that Alaska is sitting on some of the world’s richest reserves of gas,” Palin said at a news conference in Juneau.

An in-state natural gas pipeline, or “bullet line,” has been discussed for decades. There is no specific proposal pending before regulators.

Palin said her efforts, including her appointment of a state project manager, will encourage the development of an in-state pipeline that would precede construction of a 1,700-mile pipeline to Alberta that would send natural gas to the much bigger North American markets.

The in-state line the governor envisions would run 800 miles from the North Slope to the population centers along southern Alaska’s Cook Inlet, said Harry Noah, Palin’s appointee as the project manager.

It would be 24 inches in diameter and ship 500 million cubic feet a day starting in 2015, Noah said.

But for the in-state project to be economically viable, Noah said, Alaska’s tiny in-state market must be much expanded beyond what exists in the cities along the urban corridor running between Fairbanks and the Kenai Peninsula.

“We need to have some big users utilize this gas to make it viable,” Noah said. “If it’s just the residential gas network in (urban) Alaska, it’s pretty difficult to make this project work from an economic standpoint.”

Palin has introduced two bills that she said would provide regulatory flexibility needed for the project.

One would expand the mission of the Alaska Natural Gas Development Authority, a state agency that currently has a mandate of promoting a liquefied natural gas project that would deliver to a tidewater port, and the other would make changes to state right-of-way rules.

The in-state project differs from the long-discussed North Slope gas pipeline that would deliver 4 billion cubic feet a day to an existing Canadian pipeline hub.

Two groups are currently drafting plans for the big project, which experts say would cost about $30 billion.

TransCanada Corp (TRP.TO) holds an exclusive state license that entitles it to up to $500 million in state subsidies and an agreement that the state not negotiate with any other potential project sponsors.

BP (BP.L) and ConocoPhillips (COP.N), two of the three major North Slope oil producers, have teamed up to form a company called Denali that is pursuing a competing gas pipeline plan.

Both groups envision having their lines in service around 2018. (Reporting by Yereth Rosen; Editing by Gary Hill)